Issues Paper

Co-operative Bulk Handling Limited - proposed variation to 2011 Port Terminal

Services Access Undertaking

30 April 2013

Australian Competition and Consumer Commission23 Marcus Clarke Street, Canberra, Australian Capital Territory, 2601First published by the ACCC 2013

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© Commonwealth of Australia 2013

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Important notice

The information in this publication is for general guidance only. It does not constitute legal or other professional advice, and should not be relied on as a statement of the law in any jurisdiction. Because it is intended only as a general guide, it may contain generalisations. You should obtain professional advice if you have any specific concern.

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www.accc.gov.au2

1 IntroductionUnder Part IIIA of the Competition and Consumer Act 2010 (Cth) (the CCA), the Australian Competition and Consumer Commission (ACCC) may accept an undertaking from a person who is, or expects to be, the provider of a service, in connection with the provision of access to that service. The CCA allows a provider of an access undertaking to vary that undertaking at any time after it has been accepted by the ACCC, but only with the ACCC’s consent.

On 29 September 2011, the ACCC accepted an access undertaking from Co-operative Bulk Handling Limited (CBH) (2011 Undertaking). The Undertaking relates to the provision of access to services for bulk wheat export at the four grain terminals operated by CBH in Western Australia: Albany, Esperance, Kwinana, and Geraldton.

On 22 March 2013, CBH applied to vary its 2011 Undertaking pursuant to subsection 44ZZA(7) of the CCA (Proposed Variation). The ACCC is conducting public consultation as part of its assessment of the Proposed Variation and seeks submissions from interested parties by 21 May 2013.

The 2011 Undertaking commenced on the expiry of CBH’s previous access undertaking accepted by the ACCC in 2009. CBH submitted its 2009 and 2011 undertakings to meet the ‘access test’ provisions of the Wheat Export Marketing Act 2008 (Cth) (WEMA). CBH’s 2011 Undertaking is due to expire on 30 September 2014.

1.1 CBH’s proposed variation to 2011 UndertakingCBH provided the Proposed Variation to the ACCC on 22 March 2013. The Proposed Variation is available on the ACCC’s website and includes:

CBH’s Standard Port Terminal Services Agreement (PTSA) with changes to the existing document marked-up;

CBH’s Port Terminal Rules (inclusive of the Auction Rules) (PTRs) with changes to the existing document marked-up; and

a supporting submission from CBH.

The documents can be accessed by visiting to the ACCC’s homepage at www.accc.gov.au and following the links to ‘Regulated Infrastructure’, ‘Wheat Export’ and ‘CBH’. Alternatively, go directly to: <http://transition.accc.gov.au/content/index.phtml/itemId/868802>.

CBH seeks to vary both its PTSA and its PTRs via the undertaking variation process under Division 6, Part IIIA of the CCA. That is, CBH is not relying on the separate process set out in its 2011 Undertaking which can be used to vary just the PTRs.1 CBH is seeking to amend both the PTSA and PTRs to:

1 CBH, Submission to the ACCC in support of a proposed variation to its Port Terminal Services Access Undertaking, 22 March 2013, accessed at: <http://transition.accc.gov.au/content/index.phtml/itemId/868802>, paragraph 3.9.

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introduce a process to buyback allocated capacity in certain circumstances

introduce a single auction pool of capacity from 1 November to 31 October

introduce a premium rebate calculated per auction, rather than across all auctions

limit auction participants to reduce the aggregate capacity they bid across all lots by a maximum of 150,000 tonnes per round

allow customers to reposition capacity to any shipping window during the season, provided sufficient notice is given.

CBH, in its supporting submission, notes issues with its current auction system:

“In late 2011 it became apparent that in high demand years, substantial premiums could be generated and that participant behaviour could result in distortion of the intent of the auction system. CBH does not desire this behaviour for several reasons including:

(i) High auction premiums may decrease the pool of participants exporting from WA; and

(ii) Higher transaction costs for exporters and CBH in transacting the auction and in dealing with adverse events...”2

In an attempt to address these issues, CBH made some changes to its PTRs in September 2012. However, CBH submits that it needs to make further amendments to the PTRs and the PTSA ‘to further refine the auction system to ensure there is no repetition of these problems and to endeavour to continue to increase the efficiency of capacity allocation and throughput of CBH’s port terminal facilities.’3

1.2 ACCC assessmentSubsection 44ZZA(7) of the CCA provides that the ACCC may consent to a variation of an access undertaking if it thinks it is appropriate to do so having regard to various factors set out in subsection 44ZZA(3). The full test is set out in Section 3 of this Issues Paper.

The relevant factors the ACCC must consider include the objects of Part IIIA of the CCA.4 These objects include providing a framework and guiding principles to encourage a consistent approach to access regulation in each industry.5 In its assessment of CBH’s Proposed Variation, the ACCC will be required to form views regarding what constitutes an appropriate access undertaking in the bulk wheat export industry in 2013/2014. Where appropriate, the ACCC will consider industry-wide issues in its assessment of this Proposed Variation.

2 CBH, Submission to the ACCC in support of a proposed variation to its Port Terminal Services Access Undertaking, 22 March 2013, accessed at: <http://transition.accc.gov.au/content/index.phtml/itemId/868802>, paragraph 2.2.3 CBH, Submission to the ACCC in support of a proposed variation to its Port Terminal Services Access Undertaking, 22 March 2013, accessed at: <http://transition.accc.gov.au/content/index.phtml/itemId/868802>, paragraph 2.3.4 Subsection 44ZZA(3)(aa).5 Section 44AA sets out the objects of Part IIIA.

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1.3 Indicative timeline for assessmentAs per the CCA, the ACCC must make a decision on whether to consent to an undertaking variation within 180 days, starting on the day that the application to vary was received – in this case, 22 March 2013 (referred to in the CCA as the ‘expected period’).

The CCA also provides for ‘clock-stoppers’, meaning that some days will not count towards the 180-day expected period. Specifically, the timeframe is suspended where the ACCC either publishes a notice inviting public submissions on an undertaking application, or gives a notice requesting information about an application.6 As such, the consultation period following the release of this Issues Paper will not count towards the 180-day timeframe for this decision, in accordance with the ‘stopping the clock’ provisions.

Given the nature of fCBH’s variation, at this stage the ACCC does not consider the process will take as long as 180 days to reach a final decision in relation to the amendments to the PTSA and the PTRs. The ACCC has developed the following indicative timeline for its assessment of the Proposed Variation:

receipt of submissions on the ACCC Issues Paper by 21 May 2013;

ACCC draft decision in early June 2013; and

ACCC final decision in July 2013.

1.4 ConsultationThe CCA provides that the ACCC may invite public submissions on an access undertaking application, including an application to vary an existing access undertaking. The ACCC invites submissions on CBH’s Proposed Variation. Interested parties are welcome to provide submissions on any aspect of the amendments to the PTSA and PTRs, as well as any related aspect of the existing 2011 Undertaking.

Section 2 of the Issues Paper sets out specific matters on which the ACCC is seeking views. The matters listed in Section 2 do not represent a comprehensive summary of all aspects of the Proposed Variation, nor are comments required on each of those matters. Further, interested parties are invited to comment on any aspect of the Proposed Variation they consider relevant to the ACCC’s assessment.

Background information on the legislative criteria by which the Proposed Variation will be assessed is set out in Section 3 of the Issues Paper. If practicable, submissions should refer to the legislative criteria, as this will assist the ACCC in assessing the Proposed Variation.

Interested parties are asked to include detailed reasons to support the views put forward in submissions. If interested parties consider that any aspect of the Proposed Variation is not appropriate, please suggest changes that may address the concern/s, including drafted amendments where possible.

6 See section 3 of the Issues Paper for further information on these provisions of the CCA.

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1.4.1 Making a submissionSubmissions should be addressed to:

Mr David SalisburyDeputy General ManagerFuel, Transport and Prices OversightACCCGPO Box 520MELBOURNE VIC 3001

Email: transport@accc.gov.au

The ACCC prefers that submissions be sent via email in Microsoft Word format (although other text readable document formats will be accepted).

1.4.2 Due date for submissionsSubmissions must be received before COB Tuesday 21 May 2013. The ACCC may disregard any submissions made after this date, as prescribed by section 44ZZBD of the CCA. Therefore it is in interested party’s interest to make submissions within this timeframe.

1.4.3 Confidentiality of information provided to the ACCCThe ACCC strongly encourages public submissions. Unless a submission, or part of a submission, is marked confidential, it will be published on the ACCC’s website and may be made available to any person or organisation upon request.

Sections of submissions that are claimed to be confidential should be clearly identified. The ACCC will consider each claim of confidentiality on a case by case basis. If the ACCC refuses a request for confidentiality, the submitting party will be given the opportunity to withdraw the submission in whole or in part. The ACCC will then assess the Proposed Variation in the absence of that information.

For further information about the collection, use and disclosure of information provided to the ACCC, please refer to the ACCC publication Australian Competition and Consumer Commission / Australian Energy Regulator Information Policy – the collection, use and disclosure of information, available on the ACCC website.7

1.5 Further informationAs noted in 1.1 above, the Proposed Variation and associated documents, including versions with changes from the existing document marked-up and a supporting submission from CBH, are available at the ACCC’s website.

Public submissions made during the current process will also be posted at that location.

7 Available at http://transition.accc.gov.au/content/index.phtml/itemId/846791.

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If you have any queries about any matters raised in this document, please contact:

Mr Michael EadyDirector Fuel, Transport and Prices OversightACCCGPO Box 520MELBOURNE VIC 3001Ph: +61 3 9290 1945Email: michael.eady@accc.gov.au

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2 Matters for commentThis section outlines matters on which the ACCC is seeking comment from stakeholders in order to assess whether the Proposed Variation is likely to be appropriate.

2.1 CBH acquiring allocated capacityCBH’s Proposed Variation to its 2011 Undertaking seeks to introduce into the PTRs a process for CBH to consult with a customer or customers and potentially acquire or ‘buyback’ capacity that has been allocated to that customer or customers. CBH submits that the process would be undertaken in order to reduce forecast delay and demurrage that would otherwise impact on CBH customers. CBH submits that it would only invoke this clause if it could ensure that no customers would be adversely affected.

CBH proposes that the customer will be refunded the upfront marketer fee and would not be liable for lost capacity’. In addition, the customer will also receive the average auction premium for the auction in which the capacity was acquired. CBH’s proposed clause in the PTRs setting out this process is reproduced below:

6.2 Acquiring allocated Capacity(a) The Port Operator may agree with one or more Customers to acquire allocated Capacity from

the consenting Customer for operational purposes at its sole discretion provided that:(i) it has consulted with each relevant Customer in respect to repositioning Capacity;(ii) it has consulted with each relevant Customer in respect to a revised laycan;(iii) the decision to acquire allocated Capacity would not be inconsistent with clause 6 (Non-

discriminatory access) and clause 10.8 (No Hindering) of the Undertaking; and(iv) CBH reasonably considers that the decision to acquire the allocated Capacity would:

(A) not have the effect of each relevant Customer incurring materially greater demurrage at the relevant Port Terminal than would have been the case if no allocated Capacity was acquired from the relevant Customer, or

(B) be for the purpose of materially reducing forecast congestion at a Port Terminal Facility at a future date.

(b) In consideration for the Port Operator acquiring allocated Capacity, each relevant Customer will receive the upfront marketer fee paid as a refund in respect to the allocated Capacity acquired and would not be liable for Lost Capacity.

(c) Each relevant Customer will also receive the average Auction Premium for the auction in which the Capacity was acquired.

(d) The Port Operator will not acquire allocated Capacity from a Customer if that Capacity would be Lost Capacity under these rules.8

8 CBH, Proposed Revised Port Terminal Rules, provided to ACCC on 22 March 2013, accessed at: <http://transition.accc.gov.au/content/index.phtml/itemId/868802>.

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Issues for Comment

Are the proposed arrangements to buyback capacity from customers in certain circumstances appropriate?

o Do the proposed arrangements appropriately balance the interests of CBH and access seekers?

o Does clause 6.2, as proposed, ensure that CBH will only buyback capacity if it achieves the purpose of reducing forecast delay and demurrage that would otherwise impact on CBH customers, as submitted by CBH?

Is there a sufficient level of transparency in relation to how CBH will select the customer to buyback capacity from?

Should clause 6.2(a)(iii) also apply to the decision to select a customer to acquire capacity from, in addition to the decision to acquire the allocated capacity?

Is there a sufficient level of transparency in relation to how CBH will determine what amount of capacity it should buyback?

Are the dealings with the upfront marketer fee, lost capacity fee and average auction premium set out in 6.2(b) and (c) appropriate?

Does clause 6.2(d) appropriately deal with lost capacity in the context of acquiring capacity?

2.2 Changes to the auction systemThe PTRs set out the processes and procedures which CBH applies to order and manage vessels for loading. CBH operates an auction system for the allocation of port terminal capacity whereby capacity is allocated to the highest bidder/s for a shipping window at a port. Under the current auction system, port terminal capacity is allocated separately for the ‘Harvest Shipping Period’ (from 1 November to 15 January) and the ‘Annual Shipping Period’ (from 16 January to 31 October). That is, there is a separate auction (or sometimes multiple auctions) for each shipping period.

CBH is proposing to make several amendments to its PTRs and PTSA to refine the auction system. It considers the changes will increase the efficiency of capacity allocation and throughput of CBH’s port terminal facilities.

2.2.1 Single auction capacity poolCBH proposes to remove the distinction between the two shipping periods for the purposes of the auction and auction pool (which determines the auction premium and auction premium rebate). CBH considers that the benefit of this change will be to ensure that there is:

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greater flexibility with respect to trading and repositioning capacity by removing a separation between Harvest and Annual Capacity;

a smoothing of premium rebate differences between the Harvest Shipping Period and the Annual Shipping Period; and

less administration for CBH and customers in running and participating in two separate sets of auctions, each for slots in a different portion of the year.

CBH proposes to keep the current flexibility in the rules relating to the nomination of vessels during the Harvest Shipping Period, which are intended to encourage shipment and recognise the difficulties of executing shipments during harvest.

Issues for comment

Do access seekers consider that discontinuing the current separate Harvest Shipping Period and Annual Shipping Period auctions is appropriate?

Will having an auction (or auctions) for capacity across the entire marketing year be likely to achieve the benefits stated by CBH? That is, will it increase flexibility in trading and repositioning capacity, smooth the auction premiums across the year and/or result in less administrative burden associated with participating in the auctions?

Are there any perceived adverse consequences associated with removing the concept of ‘Harvest Shipping Period Capacity’ and ‘Annual Shipping Period Capacity’?

2.2.2 Auction-specific rebateCBH intends to conduct multiple auctions for capacity in a marketing year, with each subsequent auction auctioning capacity that has not been allocated via the previous auction. CBH proposes to calculate the auction premium rebate based on each individual auction. Currently, the auction premium rebate is calculated based on all auctions held for the relevant shipping period.9

CBH submits that the auction-specific rebate will provide greater certainty to customers. CBH submits that, ‘in essence, the minimum rebate will be known as soon as the auction has completed as it will be equal to the average premium paid in that auction’.10 Further, an auction-specific rebate will allow CBH to potentially add capacity after auctions have been held without impacting on the auction premium rebate of parties that have participated in prior auctions. CBH argues that this will allow it to endeavour to be more responsive to market developments and take advantage of port efficiencies throughout the year without distorting the auction premium rebate that auction participants are expecting.

9 Currently, CBH can conduct as many auctions as it likes for the Harvest Shipping Period and as many auctions as it likes for the Annual Shipping Period. CBH is now proposing that auctions will auction capacity across the entire marketing year, although CBH can still conduct as many auctions as it likes.10 CBH, Submission to the ACCC in support of a proposed variation to its Port Terminal Services Access Undertaking, 22 March 2013, accessed at: <http://transition.accc.gov.au/content/index.phtml/itemId/868802>, paragraph 2.9.

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Issues for comment

Do access seekers have any concerns with the proposed auction-specific rebate, as opposed to the current method where the auction premium rebate is calculated based on multiple auctions?

Will an auction-specific rebate provide more certainty to access seekers in relation to the overall cost of capacity acquired at auction? If so, what are the potential benefits of this certainty to access seekers and/or the wider wheat export industry?

2.2.3 Limitation on withdrawalsCurrently, there are no restrictions on the amount of capacity that an auction bidder can withdraw in an auction bidding round, either per shipping window (‘lot’) or in aggregate across all lots. CBH proposes to introduce a clause in the Auction Rules (attached to the PTRs) that stipulates bidders are only permitted to reduce the aggregate capacity they bid across all lots by a maximum of 150,000 tonnes per round. CBH considers the withdrawal limit will result in the following positive impacts:

more capacity being allocated at auction, as bidders will not be able to remove significant amounts of capacity;

increased incentive for exporters to bid truthfully during the initial rounds of the auction, as there is an increased risk that an exporter will not be able to withdraw tonnes and will be required to acquire that capacity; and

reduced volatility that might cause large changes in demand on a round-by-round basis.

Further, CBH submits that the introduction of a withdrawal limit may encourage auction participants to enter the auction with realistic demand estimates, and as such, ‘starting demand may be closer to finishing demand leading to an overall improved auction experience’.11

Issues for Comment

Do access seekers have concerns with the current ability to withdraw unlimited amounts of capacity from lots in a single auction round? If so, does CBH’s proposal to introduce an aggregate withdrawal limit address these concerns?

Do access seekers have any concerns with the proposal to introduce a withdrawal limit?

Do access seekers consider the 150,000 tonne withdrawal limit an

11 CBH, Submission to the ACCC in support of a proposed variation to its Port Terminal Services Access Undertaking, 22 March 2013, accessed at: <http://transition.accc.gov.au/content/index.phtml/itemId/868802>, paragraph 2.16.

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appropriate volume of capacity? That is, does this figure reach an appropriate balance between the interests of CBH and access seekers? If not, what would be a more appropriate figure and why?

2.2.4 Removing the ability to set proxy bidsCBH is proposing to remove the ability of auction participants to set proxy bids. As such, clause 12 (setting out the rules regarding the placement of proxy bids) and all references to proxy bids have been removed from the revised Auction Rules.

Although not addressed by CBH in its supporting submission, the ACCC understands from its assessment of Viterra’s revised auction proposal that introducing a withdrawal limit (as set out above) makes it impractical to allow auction participants to set proxy bids.12

Issues for Comment

Are there any concerns with the removal of the current ability for auction participants to bid in the auction via pre-set proxy bids?

Is it the case that the 150,000 tonne aggregate withdrawal limit per auction round is incompatible with the ability to set proxy bids?

2.3 Repositioning capacityUnder CBH’s PTRs, customers are currently able to reposition allocated capacity to a different shipping window either two shipping windows prior or four shipping windows after, provided 36 days notice is given. In addition to this current ability, CBH wishes to introduce the ability for customers to reposition capacity to any shipping window defined in the ‘Reposition Matrix’ published on CBH’s website, provided 60 days notice is given.

Given the current repositioning limits will still apply after the 60-day notice period (albeit prior to the current 36-day notice period), CBH considers that this change to the PTRs merely provides customers further flexibility to reposition capacity.

Issues for comment

Is there any aspect of this proposal that causes concern for access seekers?

12 See Viterra Operations Ltd, Revised Auction System proposal, submitted to the ACCC 13 July 2012, <http://transition.accc.gov.au/content/index.phtml/itemId/868800>. Viterra stated in this document “a proxy bid (which would typically authorise the acquisition of particular amount of Capacity up to a particular price) is inconsistent with a “rule” which specifies that Bids can only be reduced by an aggregate amount of 110,000 tonnes per round (i.e. if an exporter wished to acquire 300,000 tonnes of Capacity at a price of up to $6.50, the proxy would not specify what should occur in the round in which the price moved to $7.00 or which bids should be withdrawn leading up to the $7.00 round). Given the large number of alternative scenarios, these can only be managed properly by the exporter itself.”

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2.4 Lost capacityCBH has made some changes to clause 10 of the PTRs which relates to arrangements accommodating late arrival of vessels and defines when capacity will be treated as Lost Capacity (and fees become payable). Specifically, CBH have inserted the words ‘using Auction Capacity’ in clauses 10.1(a), 10.1(b) and 10.2(a). The ACCC understands that the proposed changes mean that capacity allocated via the Spare Capacity (first come, first served) process will not be subject to these clauses, and thus may not be subject to grace period tolerances and/or Lost Capacity Fees in certain circumstances. The ACCC welcomes any industry comments on these proposed amendments.

Issues for comment

Is it appropriate that CBH limit clauses 10.1(a), 10.1(b) and 10.2(a) so that they only apply to capacity allocated at auction?

2.5 OtherCBH has also made some other minor changes to its PTRs and PTSA that the ACCC does not consider, at this stage, likely to raise any significant concerns. For example, CBH have added to the cover page of the PTSA that the amendments will only apply to capacity to be allocated from 1 November 2013. In addition to the specific questions posed in this Issues Paper, the ACCC welcomes any other comments interested parties wish to make relevant to the ACCC’s assessment of CBH’s Proposed Variation to its 2011 Undertaking and associated documents.

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3 Legal test for consenting to an access undertaking variation

The test the ACCC applies in deciding whether to consent to the variation of an undertaking is set out in subsection 44ZZA(7) of the CCA. This section provides that the ACCC may consent to a variation of an undertaking if it thinks it appropriate to do so having regard to the matters set out in subsection 44ZZA(3). The matters under this section are:

the objects of Part IIIA of the CCA, which are to:

o promote the economically efficient operation of, use of and investment in the infrastructure by which services are provided, thereby promoting effective competition in upstream and downstream markets

o provide a framework and guiding principles to encourage a consistent approach to access regulation in each industry

the pricing principles specified in section 44ZZCA

the legitimate business interests of the provider of the service

the public interest, including the public interest in having competition in markets (whether or not in Australia)

the interests of persons who might want access to the service

whether the undertaking is in accordance with an access code that applies to the service

any other matters that the ACCC thinks are relevant.

In relation to the pricing principles, section 44ZZCA of the CCA provides that regulated access prices should:

be set so as to generate expected revenue for a regulated service that is at least sufficient to meet the efficient costs of providing access to the regulated service or services; and

include a return on investment commensurate with the regulatory and commercial risks involved; and

and that access price structures should:

allow multi-part pricing and price discrimination when it aids efficiency; and

not allow a vertically integrated access provider to set terms and conditions that discriminate in favour of its downstream operations, except to the extent that the cost of providing access to other operators is higher; and

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access pricing regimes should provide incentives to reduce costs or otherwise improve productivity.

3.1 Timeframes for ACCC decisions and clock-stoppersAs per subsection 44ZZA(7) of the CCA, the timeframes that apply to the ACCC’s decision on an access undertaking application also apply to the ACCC’s decision on whether to consent to a variation to an undertaking after it has been accepted by the ACCC.

Subsection 44ZZBC(1) of the CCA provides that the ACCC must make a decision on an access undertaking application within 180 days starting on the day the application is received (referred to as the ‘expected period’).

If the ACCC does not publish a decision on an access undertaking under section 44ZZBE of the CCA within the expected period, it is taken, immediately after the end of the expected period, to have:

made a decision to not accept the application; and

published its decision under section 44ZZBE and its reasons for that decision: see subsection 44ZZBC(6).

Subsection 44ZZBC(2) of the CCA provides for ‘clock-stoppers’, which mean that certain time periods are not taken into account when determining the expected period. In particular, the clock may be stopped:

by written agreement between the ACCC and the access provider (in this case, CBH), and such agreement must be published: subsection 44ZZBC(4) & (5);

if the ACCC gives a notice under subsection 44ZZBCA(1) requesting information in relation to the application;

if a notice is published under subsection 44ZZBD(1) inviting public submissions in relation to the application; and

a decision is published under subsection 44ZZCB(4) deferring consideration of whether to accept the access undertaking, in whole or in part, while the ACCC arbitrates an access dispute.

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